Section 271E of Income Tax Act – Penalty for Contravention of Section 269T

The government has always been cautious about unaccounted cash movements. Section 271E was introduced to discourage large cash repayments of loans or deposits that could potentially hide undisclosed income.

Under this provision, if you repay a loan or deposit in cash — and the amount exceeds ₹ 20,000 — you may attract a penalty equal to the amount so repaid. This rule ensures that transactions are transparent and traceable through banking channels.

Understanding the Connection between Section 269T and Section 271E

To understand Section 271E, you first need to know about Section 269T.

Section 269T prohibits repayment of any loan or deposit (other than via account-payee cheque, bank draft or electronic transfer) if the amount exceeds ₹ 20,000.

So, when a person fails to comply with Section 269T, Section 271E steps in — it lays down the penalty for failure to comply with the provisions of Section 269T.

In Simple Terms

If you repay a loan or deposit in cash of more than ₹ 20,000, the entire amount may be levied as a penalty under Section 271E.

For instance, if you repay ₹ 60,000 in cash to a friend or a lender, you could face a penalty of ₹ 60,000 for violating Section 269T.

However, there are exceptions — and the Income Tax Department does consider reasonable causes before imposing a penalty.

Quick Table

How Penalty Is Calculated

The penalty under Section 271E is not a percentage — it is equal to the entire amount of the cash loan or deposit repaid.

For example:

• If you repay ₹ 1,00,000 in cash instead of through bank transfer, your penalty will also be ₹ 1,00,000.
• This is over and above any tax liability on the income associated with the transaction.

The Joint Commissioner is the only authority empowered to impose this penalty after giving the taxpayer an opportunity to be heard.

What Counts as Contravention of Section 269T

Section 269T states that repayment of loans and deposits above ₹ 20,000 must be made only through:

• Account Payee Cheque or Bank Draft
• Electronic Clearing System (NEFT, RTGS, UPI, etc.)
• Other prescribed digital methods

If a person repays in cash — even partly — and the amount crosses the ₹ 20,000 threshold, it is considered a violation of Section 269T, triggering the provisions of Section 271E.

Examples for Better Clarity

Example 1:
Mr. A took a loan of ₹ 30,000 from his friend and repaid ₹ 30,000 in cash.
👉 Violation of Section 269T → Penalty under Section 271E = ₹ 30,000.

Example 2:
A business repays ₹ 50,000 in cash to a supplier as refund of a deposit.
👉 This also amounts to contravention → Penalty of ₹ 50,000 may apply.

Example 3:
Mr. B repays ₹ 25,000 to his wife in cash as a loan repayment between family members with no malintent.
👉 The authorities may waive the penalty if reasonable cause is proved under Section 273B.

When Penalty Cannot Be Imposed

Section 271E is not absolute. If the taxpayer proves a reasonable cause, no penalty is imposed.
Some common examples include:

• Transaction was between close relatives without tax evasion intent.
• The repayment was made in a rural area without banking facilities.
• The cash repayment was due to a medical or emergency situation.

Courts have repeatedly held that penalty cannot be imposed for loan repayment made under genuine circumstances.

Key Judicial Rulings

1. CIT v. Triumph International Finance (India) Ltd. (2012)
   The Bombay High Court ruled that when transactions are genuine and through properly recorded books, penalty cannot be levied.
2. ACIT v. Vardaan Fashion (2015)
   The Delhi ITAT held that penalty is not automatic — the authority must prove deliberate contravention of Section 269T.
3. CIT v. Standard Brands Ltd. (2006)
   It was clarified that repayment through journal entries is not a violation of Section 269T.

These cases illustrate that intent matters. Merely repaying in cash does not automatically mean you will be penalized if you can justify the reason behind it.

How to Avoid Penalty under Section 271E

• Always repay loans and deposits via bank transactions.
• Keep receipts and acknowledgments of every repayment.
• Maintain clear records if you deal with cash due to practical constraints.
• Seek professional guidance before repaying any large amount in cash.

Being proactive is the simplest way to avoid future notices or penalties.

Practical Impact on Taxpayers

For most people, Section 271E feels like a technical rule until it hits them in practice. A small cash transaction can lead to a big penalty if not handled correctly.

Businesses and individuals should treat cash repayments with the same seriousness as any tax filing obligation. Even unintentional violations can invite scrutiny from the Income Tax Department.

Summary Table at a Glance

Final Thoughts

Section 271E serves as a powerful deterrent against untraceable cash transactions. But its intent is not to harass taxpayers — it is to ensure transparency and accountability. If you’ve accidentally breached Section 269T, be honest and provide a valid explanation to the assessing officer.

If you’ve received a notice under Section 271E or are unsure whether your loan repayment violates Section 269T, don’t panic.
Visit Callmyca.com — our experienced CAs help you analyze transactions, respond to penalty notices, and avoid future compliance risks with complete peace of mind.